Tuesday, June 16, 2009

State of the Market - 6/15/09

I said yesterday that the bulls really needed to step up today if this market was not going to fall into correction mode. Well, after about 2 and 1/2 hours of a listless effort to bounce the market, the bulls gave up and stocks fell for the second straight day. The market opened slightly higher but could not get anything going to the upside and basically moved sideways until lunchtime. As the lunch hour started, stocks broke their lows for the day and from their just fell further. They hit a low around 2:30 and bounced slightly into the close, but it was an unimpressive bounce and stocks still finished with decent sized losses. The only good news for the bulls is that volume appears to be lower, which will avoid another distribution day, but I don't have the final totals.

Technically, several areas of support that were holding on by a thread at the end of trading yesterday clearly broke today on the S&P, and based on everything I see, I am assuming we are seeing a top put in here. I have no idea how long of a correction this will be, but for now defense is the name of the game. I am still not shorting because I expect a bounce back soon, and will be watching the following levels carefully. On the S&P, the 907 level (200 day MA), 892 level (50 day MA) and as far down as 875 (former resistance) are all areas from which a bounce could occur. On the Nasdaq, 1775 is former resistance while 1725 is where the 50 day MA is at - I don't expect the Nasdaq to get that low without some sort of bounce.

The financials also broke down out of their triangle pattern today, but just barely. Watch $11.47 on XLF as possible support. The McClellan Summation Index did get the moving average crossover today that I've been watching for, and that is just another reason to think we are in correction mode here.

The carnage continued on individual charts as well today. I've been harping on this fact starting back on Friday, and this remains the main reason I am now bearish for the intermediate-term. Add PMTI, JCG, CSKI, ASIA, WATG, CYOU, CAST, and TQNT to the list of strong, leading stocks that are now looking vulnerable or just downright ugly. I also noticed some stocks that were hit Friday and yesterday try to bounce today, but finish near their lows (FREE, FEED, TSL, YGE, TSRA). Because of the past three days, there just aren't that many charts that look exciting to me, and regardless of what the indices are doing, that would likely keep me in cash. When you factor the break of support in the overall market, then you have all the more reason to be cautious here.

Overall, I am going to probably sit out the rest of this week in cash as although I expect a reflex bounce soon, I am not looking to play it. It just doesn't interest me here. What I would like to see happen is a weak bounce back into the 930 area on the S&P, which would setup some bear flags on these individual charts that have had such sudden drops that past three days. If that occurs, then I would look to get short in some cases. In the meantime, I will just wait. If the bulls recover and push the market above those areas, then maybe I will change my outlook, but everything I see is telling me that there is a very high likelihood we are in correction mode. Take care and good luck Wednesday


Nergo said...

I still read your posts. Thanks for all the work you do.


Nergo said...

I read your comments every week. Thanks for the info.


Mac said...

Thanks Nergo. Hope you're doing well.

Jullmg said...

good post! Added your blog to favorite list. I also think we are at least in correction mode...and i personaly think s&p500 will never go above 950 for a couple of months